Fitch Affirms Nuernberger's IFS at 'A+'; Outlook Stable

Fri Jun 6, 2014 10:20am EDT

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(The following statement was released by the rating agency) FRANKFURT/LONDON, June 06 (Fitch) Fitch Ratings has affirmed German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) ratings at 'A+'. The agency has also affirmed their holding company Nuernberger Beteiligungs-Aktiengesellschaft's (NB) Issuer Default Rating (IDR) at 'A-'. The Outlook on all ratings is Stable. NB's EUR100m subordinated debt has been affirmed at 'BBB-'. KEY RATING DRIVERS The ratings on NLV, NAV and NKV are based on Fitch's group rating methodology. Fitch views all three entities as core to Nuernberger group (NG). The affirmation reflects NG's strong results, improved fixed charge coverage and reduced financial leverage at end-2013. NG's gross combined ratio increased to 101.2% in 2013 from 95.1% due to high weather-related claims activity in Germany in 2013. However, NG reported a strong gross combined ratio of 86% for 3M14. The affirmation also reflects NG's strong capitalisation, its leading position in the German unit-linked life and disability market, and its resilience to a persistently low interest rate environment compared with many of its competitors. Offsetting these positive rating factors is NG's low geographical diversification, its above-market average exposure to equity investments and the current difficult operating environment for German life insurers. Although NLV accounts for more than 80% of NG's total assets and regulatory group solvency requirement, German solvency rules allow only limited recognition of NLV's funds for future appropriation (FFA) within the group solvency calculation. If the full FFA were to be included as it is in the individual entity solvency figures, NG's solvency ratio would be more than 160%, which Fitch regards as a strong level. NG reported a group solvency margin of 126% at end-2013 (2012:121%). NG's operating leverage was 10.3x at end-2013 (2012: 10.2x) and remained more than supportive of the current ratings. This is despite NLV's regulatory solvency margin having declined to 151% at end-2013 from 167% at end-2012. NLV's FFA - measured as a proportion of actuarial reserves - was at 8.6% at end-2013, well in excess of Fitch's estimate for the German market average of 5.7%. Fitch forecasts that NG's capitalisation would have been largely unchanged at end-2013. NLV's life new business (measured in annual premium equivalent, APE) and gross written premiums (GWP) each decreased 2% in 2013. This compares with Fitch's estimate that the German life market's APE decreased 6% and GWP increased 3.8% for the same period. NLV reduced its single premium business while the market grew in 2013. NLV's regular premiums increased 2.8% compared with Fitch's estimate of stable regular premium income for the market. NG reported pre-tax income of EUR111.2m in 2013 (2012: EUR123.3m). Fitch believes that the decline was primarily driven by high natural catastrophe losses in Germany in 2013. Also the low investment yield environment continues to reduce the running yield of insurers' fixed income investments. Fitch views ALG's equity exposure as higher than the average for German primary insurers. As a proportion of total investments, NG's exposure to equity investments stood at 8.4%, significantly higher than the market's average of 3% at end-2013. NG's fixed charge coverage improved to 11.3x in 2013 (2012: 9.2x), which Fitch regards as adequate for its rating. In addition, financial leverage decreased to 12% at end-2013 from 14% at end-2012. Fitch expects NG to maintain fixed charge coverage in line with the entities' ratings in 2014. NG had total assets at end-2013 of EUR26.9bn (end-2012: EUR25.2bn). The life segment reported unchanged GWP of EUR2.7bn, the non-life segment stable GWP of EUR0.7bn and the health segment unchanged GWP of EUR0.2bn. RATING SENSITIVITIES An upgrade of the ratings in the near- to medium-term is unlikely unless the group increases its size/scale and improves diversification, while maintaining strong capitalisation. Key rating triggers for a downgrade include weak overall profitability on a sustained basis which may be manifested in a return on equity below 6% and/or a sustained material erosion in capitalisation in the form of NLV's solvency margin falling below 150%. Contact: Primary Analyst Dr. Christoph Schmitt Director +49 69 7680 76 121 Fitch Deutschland GmbH Taunusanlage 17 60325 Frankfurt Secondary Analyst Dr. Stephan Kalb Senior Director +49 69 7680 76 118 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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